[1] http://www.sciencedirect.com/science/article/pii/S2212567115... [2] https://litigation-essentials.lexisnexis.com/webcd/app?actio... [3] https://motherboard.vice.com/en_us/article/xwwv83/cryptocurr...
Also these articles fail to mention that volatility is quickly decreasing, thanks to increasing market depths: https://mobile.twitter.com/lsukernik/status/8649208737189519...
Is it 10%,50%,or 0.001%?
Because there's risk, it fluctuates, there's no guarantee it will always go up. People need to decide to what degree do they want to invest and be exposed to the risk and reward. Say someone decides they want 1BTC of exposure, and are contemplating buying an item of 0.01BTC. Would that really be a big deal? Small changes in the degree of exposure shouldn't be a financial problem to worry about.
Plenty of the bitcoin true believers have.
Everything you're talking about makes sense for investing in a commodity, not for a currency.
No it isn't- the energy cost of bitcoin is ongoing and depends on the volume of transactions. Each time money changes hands, it costs energy to verify it. Comparing it to VISA or ACH makes the most sense, because those also incur ongoing costs per transaction.
Volume or value of transactions has nothing to do with the energy expended.
The energy is needed to calculate a mathematic proof that makes sure your transaction cannot be reversed or tampered with.
This mathematic proof on average is calculated every 10 minutes, with no correlation to the number of transactions.
You make a transaction, and if the bitcoin network has expended 1TWh after you sent it, at least 2TWh are needed to reverse that transaction (and/or any other transaction). You can see how over time it becomes impossible, even with unlimited money, to reverse one.
The energy increases with the volume of transactions because there will be more people calculating hashes. The more people mining, the harder they make the hash calculation so that the target is ten minutes. More transactions = more people mining because there is more demand to verify blocks.
Transaction number is not correlated with mining energy expenditure.
Mining is used to secure the ledger in a way that the same amount of energy is needed to alter it.
The block hash begins with a number of zeros.
Try for yourself how many tries it takes to find a string that hashes to a hash beginning with 3 zeros.
Bitcoin block hashes begin with 13 or 14 zeros IIRC. This means that you need to try trillions of combinations again if you want to alter a block. And then you must keep finding other hashes with enough zeros fast enough to outcompete the whole network.
But the cost of hashing is the same, with 1, 10 or 1000 transactions in a block. And the block time is on average fixed at 10 minutes.
You don't hash transactions directly, you hash a block header that keeps only the merkle root hash of the transactions. The merkle root is fixed size.
You're only kind of right. The mining algorithm cares not one bit about number of transactions, so higher tx volume has no direct effect on the mining energy expenditure. But it does have a second order effect.
More transactions usually entails higher fees (as people compete for block space to put their transactions in). More fees means higher mining rewards, means higher incentive to mine, means more mining activity, and, therefore, higher energy expenditure.
Actually it does to some extent because the transaction hashes are used to calculate the block header hash.
Did i get this wrong?
Numbers i said are my guesses, but the order of magnitude should be about that.
I don't remember exactly how many hash ops you have to do to put 1000 txes in a merkle tree, but it should be more than 1000 and less than 10000.
My point was exactly that. Computational cost of the merkle tree is negligible when confronted with the computational cost of the POW
But, it gets worse simply maintaining value takes hashing power to avoid a bad actor double spending and destroying faith in the system. Thus, even as a value store you need to pay for large scale hashing.
If you mean that over time the incentive to centralization become stronger, yes, you are right. There must be competition to enter the blocks, otherwise when mining subsidy ends, there will be no incentive to secure the ledger.
If you mean that ten times the transaction have a computational cost 10 times greater (or 5, or 2), you're wrong.
> The whole point of the system is to verify transactions and it stops working if it doesn't do that.
Plenty of cryptocurrencies are mining tons of empty blocks. on the short term, if there are no transactions, mining continues with the same difficulty.
The effect is long term: if noone is using the currency for transaction, it has no value so less and less people mine it. The difficulty drops, and the security drops, pulling value down even more.
You are almost right, but it is a very indirect effect, and takes years to manifest itself.
The number of transactions is entirely unrelated to the number of people mining. There could be an increase in transactions while the number of miners falls, or vice a versa. This is why the hash difficulty adjusts, to ensure that the new block rate (and therefore the transaction rate) stays the the same regardless of the number of miners.
If the number of miners dropped, energy use would drop, but transaction throughput would remain exactly the same.
Also, transaction size (in value) is entirely unrelated to transaction size (in kilobytes) which is what effects the number of transactions that can happen. Most transactions that just transfer some bitcoin from one assess to another are exactly the same number of kilobytes irrespective of how many bitcoin are being transferred.
I also commented elsewhere to this effect, but this is not quite true: number of transactions correlates very strongly with higher transaction fees, which further incentivises mining activity. Higher transaction volumes also usually come hand in hand with higher prices, which is another incentive for mining activity. Just because there is no direct effect (which you're absolutely right — the mining algorithm cares not one bit about the transaction volume) doesn't mean there aren't second order effects at play.
The post I replied to was claiming that more transactions strictly required more miners to process them, which isn't true. Yes, more transactions might incentiveise more miners, but it doesn't require them. And it's only one part of the complex interplay of incentives that miners face.
Say price dropped sharply, that could result in an increase in transactions as speculators scrambled to get their coins to an exchange to sell, while at the same time we might see a drop in miners because with lower bitcoin priced there is less payout for mining.
Ultimately the sequence of incentives and disincentives that drive miners is complex. Because of course, although a drop in price might deter some miners, if others believed that the drop was only temporary may continue mining and just hold the bitcoin to sell later when the price recovers. I think it's hard to say anything totally concrete about the expected miner behaviour following any event.
I knew it was wasteful, but this article is really putting it into perspective. And because of the proof-of-work system, the wastefulness is intentional; you have to prove you've wasted enough time and energy to be allowed to mine a bitcoin.
And, the high value transactions tend to dictate the value of the whole system. Not every transaction is equal in that regard. If all the high value transactions were to move to another system, the coin price would plummet, and so would the amount of energy required to mine blocks, and thus the 'per transaction' cost for low value transactions would plummet.
The right way to think about it is that we spend around a billion dollars per year protecting $70 billion in assets. Put that way, it doesn't seem so bad.
If you look at the percent of the US GDP spent on military defense, you'll see that bitcoin is quite attractive by comparison.
If the entire monetary system of the US were replaced by BitCoin, do you think there would be no need for an army? Would the block ledger be "protecting" all the actual physical assets, land, and people?
You can argue over whether the US should have a military, or its size, but to imply that it's just to protect the dollars isn't going to sway anyone in an argument.
I did not mean to imply that bitcoin could replace the entire military, only that the ratio of spending vs. assets defended is better.
The total value of the United States, all assets, private and public, is closer to $250+ trillion [1]. That's a 1:400+ ratio.
US household assets alone are near $95 - $100 trillion at this point [2]. That's a ~1:160 ratio just for household wealth.
You missed by an extreme amount in your speculation and that's just based on present value. If we were going to be rational about it, we'd want to consider that present military expenditures help to keep safe future value creation (I'll note that I'm not arguing whether those expenditures are $n too high or too low).
[1] https://en.wikipedia.org/wiki/Financial_position_of_the_Unit...
[2] http://www.reuters.com/article/us-usa-fed-households-idUSKBN...
It's a hard number to measure. Bitcoin inflation has a fixed measurable cost though (12.5 coins per 10 minutes), if that's acceptable to you for the benefits you get, then it's money well spent burning electricity.
This is another point where BECI is misleading... the author managed to screw up so many things on his site :-(
Feel free to transact more. This will NOT consume more energy, as explained by many other commenters. The energy per transaction decreases as more transactions are processed, see argument #5: http://blog.zorinaq.com/bitcoin-mining-is-not-wasteful/
Care to share a source for this claim? I think you might have gotten transaction and new block generation mixed there, but I may be wrong, of course.
Wait, what? That's not correct at all.
The energy cost is based on the "difficulty", which is derived from the moving average of the hashpower in the network. Bitcoin effectively forces the network to take a specific amount of time to mine a block irrespective of the number of mining nodes. The transaction volume has nothing to do with it.
You can look at the current Bitcoin energy costs as the startup cost to establish a new gold mine or a new country with its own currency.
In that future you will still mine blocks, but there won't be any new bitcoin generated in that block. Sure, you might want to use a different word for that than "mining", but it will still have very real and significant energy.
Bitcoin will probably look extremely different by then, so most bets are off anyway.
If mining becomes less profitable, fewer people will mine and the proof-of-work will tune to be less difficult, but the cost never disappears and there's still a huge amount of energy wasted in the selection process for adding blocks. If too few people mine the currency will be totally destabilized.
A valid comparison. Gold mining is spending resources to increase the amount of gold in existence, without delivering any other value.
> U.S. dollars require the existence of a powerful economy and trillion dollar military to keep the currency secure and desirable.
Not a valid comparison. Outside of a few relatively inexpensive activities at the US Mint and inside banks, no resources are being spent specifically on increasing the money supply. The value of the dollar is the byproduct of economic activity that exists primarily to achieve other things.
Bitcoin mining exists to timestamp transactions so that the network can achieve consensus on the state of the ledger. It is designed to use as much energy as possible, so as to make it expensive to cheat.
Bitcoin is not money as we think in a modern way. If you think of money a way to exchange goods then yes Bitcoin is money. Modern money (printed piece of paper labeled in currencies in its materialized form. Just a sequence of digits on your bank account) is dept. That's why currencies have interest rates (IR). It is also possible to create money out of nothing. IR and volume are adjusted according to the economy. Bitcoin is closer to a commodity in the sense that it is finite and requires work to be extracted.
Bitcoin could be forked in the future to become inflationary. It has no permanent rules, things can change through consensus.
It isn't like gold (gold can be devalued through poeple losing faith in it, etc., but the supply of it doesn't inflate other than through discovery/mining).
If rules are changed by a fork then you will have 2 different coins. We already saw it with bitcoin cash. Another way would be that the current consensus on Bitcoin itself changes. But that's a risk. How can people then predict such a consensus change. How risky is it to have Bitcoin since the day after the rules may change ?
Ecological concerns aside, this puts a bit of a perspective on the overhead costs of maintaining a currency.
Fiat currencies require a stability of power of course, which is impossible to quantify.
The gold you trade is already almost all extracted, I doubt there's 1B$ a year in gold extraction investment but maybe there is.
>U.S. dollars require the existence of a powerful economy and trillion dollar military to keep the currency secure and desirable.
All currencies require a relevant economy using them to be valuable so that's not a real requirement. As for a trillion dollar military that's doubtfull. There are plenty of currencies with the market cap of Bitcoin that don't have nearly as much of a military backing them.
New mining increases gold stock 1-2% per year, but very dependent on market conditions.
Gold has double the volatility of equities with less total return than U.S. treasuries. It doesn't really belong in most people's portfolios.
However bills cost 4.9 cents/dollar for $1 bills and half a cent per dollar for $20 bills. So the vast majority of money is much, much cheaper than a bitcoin.
[1]: https://www.usmint.gov/wordpress/wp-content/uploads/2016/06/...
Coins and cash actually get consumed as they degrade and/or get lost or destroyed. You need to replenish the supply.
But you can circulate bitcoin forever.
You need to compare transactions.
How do I send you cash? You can give me an address to meet you at. We both drive our cars or take public transit there and consume some amount of energy and time to meet up. Then I give you cash.
Or you could just tell me a bitcoin address to send to.
You have to compare Bitcoin to the concept of money, like U.S. dollars, but not literally the paper. A comparison to bars of gold is OK however since that is money and not a representation.
Bars of gold certainly are a "representation" of money. They are only worth something so long as we all say they are. (Besides the little bit of intrinsic value from electrical wiring.) If people stopped saying gold was worth anything, it wouldn't be.
Btw, you can buy pizza with gold, I guarantee someone will take your gold for pizza.
War economy also functions on gold.
Bitcoin is a payment network with its own currency. Visa is the same thing, but the currency is linked to dollars. It is the most apt comparison.
Still, let's hope Bitcoin moves away from wasting energy soon.
Blockchains can operate without all of those.
Bitcoin doesn't even try to replace contracts. Hard-line Ethereum Classic fans think they can replace contracts (they won't).
You can't use a blockchain to protect your land rights, but you can use it to protect digital rights and that means you don't need external resources like courts to spend their time on digital rights. They can focus entirely on land conflicts and other physical matters, which will make them cheaper overall.
Even if a few people in Venezuela manage to use Bitcoin (propped up by the US dollar, nobody's selling their Bitcoin for Venezuelan currency), that still easily meets my definition of a failed society.
Since I personally don't worry about centralisation and "trust", I like the idea that a system like the blockchain could be used to revolutionise payments without the need for tin foil hats and proof-of-work.
What does "exist" mean? The currency exists, but the amounts transfered over visa and other systems is not related to how much physical banknotes exist.
I haven't touched a banknote or coin in over a year. If they didn't exist I wouldn't have noticed.
You could argue that puts me in the hands of banks and visa/mc and you'd be correct. They know more about me than I'd like. But I hope the energy cost of my transactions are pretty low. More and more stores no longer accept cash, meaning they have no transports for cash.
The currency I use is not backed by a large gold reserve nor a huge military. Just a regular national bank of a small country.
So visa isn't money, but a central bank, commercial banks and visa can maintain a currency without the need for a lot of physical money, and hopefully with reasonable energy use.
All-in sustaining costs for mining an ounce of gold (worth $1,293.70) is between $1,100 and $1,200.
Bitcoin however is money. As well as being a payment system.
The correct comparison would be to compare the cost of Bitcoin to U.S. dollars or gold. Gold requires hundreds of dollars per ounce and untold energy to extract. U.S. dollars require the existence of a powerful economy and trillion dollar military to keep the currency secure and desirable.